Explained: Why is India facing coal crisis and why it’s critical to resolve it

by 5paisa Research Team 08/10/2021

For some years now, India has not faced a coal shortage. In fact, the Narendra Modi government has often cited this as an achievement, in contrast to the days of the previous Manmohan Singh-led United Progressive Alliance regime, during whose era, India faced huge coal shortages and power supply cuts. 

But things could again be changing, for the worse.

India is facing a near-crippling coal shortage and the problem could last for at least as long as the next six months. 

Why is India facing this coal shortage?

For one, August and September this year were unusually rainy months in India. Heavy rains impacted coal production and delivery in mining districts across the coal belt in states like Jharkhand, Orissa and Chhattisgarh. Moreover, plants could not ramp up capacity to pre-monsoon levels. 

On top of that as India began revving up its Covid-ravaged economy, demand outstripped supply, with 124 billion units of electricity produced in August as compared to 106 billion units in August 2019, according to a report by The Indian Express

Moreover, India’s coal imports fell during this period, as international prices rose. The price of Indonesian coal went up more than three times from $60 per tonne to $200 per tonne between March and September.  

How important is coal in India’s energy mix?

Cheap coal is the dominant fuel that fires up India’s economy. Almost 70% of India’s electricity needs are met by coal-fired plants. 

As of the beginning of this month, the 135 coal-based power plants in the country had an average of just four days of coal stocks left. 

What has the government said? What is it doing about it?

Power minister RK Singh has said that the situation is “touch and go” and has asked state-run coal miner Coal India as well power producer NTPC Ltd to raise output from their mines. 

The government is also trying to bring more mines on stream, The Indian Express report said. 

Despite costlier imported coal, India will have to go in for more imports, to meet domestic demand for power. 

If the shortage continues, what could be the impact on the economy?

For one, it could delay the reopening of the economy, which has been trying to get back on its feet following the debilitating lockdowns of 2020 that plunged it into a recession and left millions jobless. 

Not only will some businesses have to downscale production, prices of downstream commodities like steel could see a significant rise. In fact, VR Sharma, managing director at steelmaker Jindal Steel and Power Ltd, has said as much. A tonne of coal, which was in the range of Rs 4,000-6,000 a tonne, is now costing Rs 8,000-Rs 12,000 a tonne, Sharma told PTI in a telephonic interaction.

“Steel in India at present is in the range of Rs 50,000-55,000 a tonne. Shortage of coal has led to an increase in its prices that will have an impact on steel, which may also go up due to this unprecedented rise," he said.

India consumes 1,200 million tonnes of thermal coal or steam coal per year.

However, state-owned Coal India produces 800 million tonnes annually, a shortfall of 400 million tonnes. Of this, the domestic steel industry alone consumes 150 million tonnes of coal per year

Sharma thinks that the crisis can be managed if Coal India increased its production. The company must produce 100 million coal per month to meet the annual demand that comes from various industries like power, steel, aluminium and copper.